Most analysts expect a major economic recovery in the new year, with some of the more bullish folks, including those at Goldman Sachs, calling for first-quarter gross domestic product (GDP) in the U.S. to expand by a whopping 5%. Goldman’s big GDP upgrade was thanks in part to the massive $900 billion fiscal stimulus bill that just got passed. With Canada likely to follow in the footsteps of the U.S. in terms of recovery, investors should look to the following four reopening plays to outperform the TSX over the year ahead.
Air Canada (TSX:AC) took a big hit to the chin in February and March. AC stock may have surged in November, but the name is back on the retreat amid worsening second wave fears. I think the recent dip at Air Canada stock is buyable, as shares still look ridiculously undervalued when you consider its profitability prospects in 2022 and beyond.
The recovery in the air travel industry may also be stronger than most expect due to the likelihood of pent-up demand for leisure travel amid quarantines and stringent restrictions. While Air Canada faces a tough uphill road to recovery versus its peers due to its reliance on international flights, which could be slower to bounce back, I still think the Canadian stock is too cheap to ignore at $23 and change.
Aritizia (TSX:ATZ) is a discretionary retailer that could really make up for lost time in 2021, as Canadians put their excess savings to work in “wants” rather than just needs (necessities). The demand for articles of clothing has waned for most of the year. Despite the incredible momentum faced by Aritzia in 2019, the firm had to battle through mall closures and all the sort, like most other retailers.
The company’s e-commerce platform has been doing a tonne of the heavy lifting of late. And with one of the better omnichannel presences out there (e-commerce is robust, while the in-store physical experience remains unmatched), Aritzia could be one of many major beneficiaries of a potential discretionary spending boom that could present itself in the post-pandemic environment.
Even if the pandemic drags through most of 2021, Aritzia has more than enough tools to weather out the storm. The firm is building a brand for itself, and its longer-term U.S. expansion efforts should not go unnoticed by the growth-savvy.
Okay, I admit it. I was wrong with my bearish call on shares of Magna International (TSX:MG)(NYSE:MGA). Shares of the auto-part maker have been roaring as the auto sector bounced back from the worst of the COVID-19 crisis. With a tonne of hype over electric vehicles (EVs) and self-driving tech, investors have piled into Magna amid its recovery, with hopes that the firm will get a major boost from the automakers and tech firms that are all itching to get their own next-generation vehicles on the road.
With a discretionary spending boom likely on the horizon, I suspect more deals will be inked with Magna and its peers. The company recently joined forces with LG Electronics to build EV components. The deal sent shares of Magna surging. More such deals could be coming, and I think MG stock has more room to run in the New Year.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Magna Int’l.